Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. What is the explanation for this? Cryptocurrencies, like real currencies, have no cash flow, because in order for you to benefit, anyone else must pay more for the currency than you did. We will discuss Investing in Cryptocurrencies is wise or not?
This is known as the “greater fool” investing principle. In contrast, a well-managed company grows in value over time by increasing profitability and cash flow.
“Those who believe that cryptocurrencies like bitcoin would be the currency of the future should keep in mind that a currency requires stability.”
Cryptocurrencies like Bitcoin, as NerdWallet writers have pointed out, might not be as stable as they seem, and some prominent voices in the investment community have advised would-be investors to avoid them. Warren Buffett, the legendary investor, made the following comparison between Bitcoin and paper checks: “It’s a very efficient method of sending money, and you can do it anonymously.” A check may also be used to send money. Is it true that checks are worth a lot of money? Only because they have the ability to send money?”
For those that believe that cryptocurrencies like Bitcoin would be the currency of the future. It’s important to remember that a currency has to be stable in order for retailers and customers to know what a fair price for products is. Throughout most of their history, Bitcoin and other cryptocurrencies have been anything but secure. For example, while Bitcoin traded at close to $20,000 in December 2017. Its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again. Investing in Cryptocurrencies is high-risk investment.
This price volatility poses a problem. People are less likely to invest and circulate bitcoins today. If they are worth a lot more in the future, making them less viable as a currency. Why invest a bitcoin when it might be worth three times its current value the next year?
Investing in cryptocurrencies
Investing in cryptocurrencies has the potential to make you extremely wealthy. However, you could lose all of your funds. How can any of those statements be valid at the same time? Crypto properties, like most investments, come with a slew of risks as well as enormous potential rewards.
If you want to gain direct exposure to the market for digital currency. And the ventures or companies it facilitates, cryptocurrency is a good investment.
Several publicly traded firms, such as Square (NYSE:SQ), PayPal (NASDAQ:PYPL). MicroStrategy (NASDAQ:MSTR), and CME Group, can provide limited exposure to the cryptocurrency sector (NASDAQ:CME). However, such investments would not be as focused on a cryptocurrency. Or blockchain project as investing in a crypto asset directly.
Investing in digital currencies including Bitcoin and Ethereum is regarded as a “high-risk” venture. Cryptocurrency prices are inherently volatile; some may go wrong, others can turn out to be scams. And still others can appreciate in value and provide a good return for investors. If you’re thinking of investing in cryptocurrency, you’ll want to use a reputable trading platform like Bithumb.